From the Virginia Society of Certified
Public Accountants - Presented by Dean Knepper, CPA, CFP®

SHOULD YOU USE "DO-IT-YOURSELF" TAX RETURN PREPARATION SOFTWARE?

If you have a complex return, using a commercial "Do-It-Yourself" tax software
program may not be the best way to maximize your tax savings. For taxpayers
with complex
deductions or income from a business, investments, rental property, a farm,
or a trust, using the services of a CPA may save time and money. A CPA will
make your return preparation easier, generally help reduce your taxes, and
keep you in top financial condition.

Unlike tax software, a CPA offers judgment, experience and the ability to
explain options. If you have basic financial and tax circumstances, self-help
tax software may work just fine. But beware that not all software programs
are easy to use. If you’re too conservative, you may end up paying more
in taxes, and if you’re too aggressive, you may be saddled with unnecessary
penalties. To play it safe, consider engaging the services of a CPA who understands
the tax law and can help you resolve complicated tax issues. You may sleep
better knowing that you’ve taken every appropriate deduction and are
less likely to have penalties imposed or problems in an IRS audit.

Because of their training, experience and ethics, CPAs do more for clients
than a tax software program. Generally, to become licensed, CPAs must meet
a series of stringent requirements, known as the “three E’s” — Education,
Experience and Examination. Requirements in Virginia mean obtaining a Bachelor’s
degree that includes 150 hours of college credit (beginning July 1, 2006),
completing at least one year of work experience, and passing a comprehensive
national examination which only 25 to 35 percent of candidates, on average,
pass the first time.

That’s just to get into the profession. Once licensed and active, CPAs
must stay current by taking continuing professional education in order to maintain
their licenses. CPAs also adhere to a strict code of ethics, with violators
facing sanctions, including possible expulsion from the profession. In fact,
effective January 1, 2004, all Virginia CPAs, including those working in industry,
must take two CPE credits in ethics each year.

Some software programs give you the option of consulting a tax professional
for an additional fee, but be careful about choosing that route. If you do,
you may not know who’s working on your taxes or if that individual is
a CPA. In addition, the virtual adviser may not understand your individual
tax circumstances and, as a result, may not be able to answer your questions
correctly and efficiently, or provide any recourse for errors. Conversely,
CPAs stand behind their advice. They will represent you in a tax audit and
know how to work on your behalf with the IRS.

Additionally, self-help tax software may not include feedback on certain topics
such as:

• How to avoid the Alternative Minimum Tax (AMT) affecting more and
more people in the middle class

•
Why a “dividend” from some preferred “stock” is really
interest and therefore not eligible for the 15 percent rate

•
Whether you should, on an after tax basis, pay off your mortgage and invest,
or reduce your credit card debt

• The best way to save for your child’s college education (529 plan,
Education IRA, Uniform Gift to Minors account, etc.)

• Advantages and disadvantages of electing accelerated depreciation

• If you qualify for a home office deduction and should claim the deduction

You may find some explanations of these issues on the software’s help
screen (generally straight out of the IRS instruction booklet) but the “judgment” and “experience” factors
are completely missing.

CPAs are dedicated professionals who understand the business of taxes and
finance. Their knowledge and training in tax matters enable CPAs to develop
effective techniques that often result in substantial tax savings. Year round,
they can help you with tax issues as they arise and develop a plan to minimize
your taxes. But they don’t just prepare tax returns. CPAs review your
overall financial picture to find ways to help you achieve your goals. Considering
the expertise and quality of services they provide, CPAs outshine the virtual
competition.

The Virginia Society of CPAs is the leading professional association
dedicated to enhancing the success of all CPAs and their profession
by communicating
information and vision, promoting professionalism, and advocating members’ interests.
Founded in 1909, the Society has nearly 8,000 members who work in public
accounting, industry, government and education. This Money Management
column and other financial news articles can be found in the Press
Room on the VSCPA Web site at www.vscpa.com.